A Federal Court Temporarily Blocks the Final Overtime Rule: What Now?

Payroll

Article

12/07/2016

Just as many American businesses were preparing to make staffing and salary adjustments (some had already made changes) to comply with the new Federal Overtime Rule scheduled to take effect on December 1, 2016, things came to an abrupt halt. On November 22, a federal court in Texas temporarily blocked the DOL from implementing and enforcing the rule.

The Department of Labor’s (DOL’s) Final Overtime Rule would:

Raise the salary threshold for employees exempt from overtime pay under the executive, administrative and professional (EAP) white collar exemptions from $455/week to $913/week — that’s $47,476 for a worker who works the whole year;

Raise the annual salary for the Highly Compensated Employee exemption from $100,000 to $134,004; and

Create a mechanism for automatic updates to the salary threshold for the EAP white collar exemptions and HCE annual salary, every three years, based on wage growth over time;

If implemented, the DOL expects the Final Overtime Rule to impact approximately 4.1 million workers, making them eligible for overtime pay when they work more than 40 hours a week. The DOL expects about 100,000 other employees to receive raises, putting their salaries above the new salary threshold under the Final Overtime Rule.

Status of the Final Overtime Rule

The Final Overtime Rule was temporarily enjoined pending further review by the court late last month. Currently, employers do not need to comply with the original Dec. 1 effective date. But the injunction has added to the uncertainty of the future of the Final Overtime Rule

“This injunction means that the December 1 deadline for compliance with the new rules cannot currently be implemented or enforced by the Department of Labor,” said Paychex president and CEO Martin Mucci. “While it’s anticipated that there will be further judicial review of the injunction, this development creates substantial uncertainty for businesses.”

What Could Happen

The preliminary injunction has been appealed by the U.S. DOL and the 5th Circuit Court of Appeals has granted their motion for an expedited schedule. However the schedule extends past January 20, the date President-Elect Trump will take office. A number of possible scenarios could now play out including, but not limited to:

Trump could direct the DOL to rescind their appeal upon taking office or direct the DOL to write new regulations to change or eliminate the provisions under the Final Overtime Rule, including but not limited to lowering the salary thresholds, exempting certain small employers, eliminating the automatic updates.

There is also the possibility that the Federal court will rule on the outstanding motion for summary judgment. If that ruling goes in favor of the plaintiffs, it would permanently eliminate the Final Overtime Rule.

The future of the Final Overtime Rule is difficult to predict and if you have already implemented changes to employees’ work status, or adjusted salary levels or made other changes in your effort to obtain full compliance with the Rule, you may be feeling frustrated, angry, or just confused. But your efforts may not necessarily have been in vain given the uncertain future of the Final Overtime Rule. Most employers in this situation will not attempt to repeal these changes given the risks, including the impact on employee morale and the possibility that they might need to reinstate the changes in the near future.

If you haven’t already made adjustments to comply with the new salary thresholds under the Final Overtime Rule, you may decide to hold off and continue to monitor future developments, but also be prepared to make the applicable changes to employees’ status and salaries immediately should the Final Overtime Rule become effective.

And finally, if you haven’t actually made changes to comply with the provisions of the Final Overtime Rule, but you have informed your workers about upcoming changes you intended to make, you may choose to hold off of planned changes or decide to move forward depending on your situation and a careful assessment of the potential risks.

Overall, employers are encouraged to continue to monitor developments and to cautiously consider next steps depending on their specific business situation. In light of the uncertainty surrounding the future of the Final Overtime Rule you may wish to consult with legal counsel or an HR professional to evaluate your position and to discuss the best way to communicate with your employees about the status of the Final Overtime Rule and your plans in response to these developments.

Paychex is keeping close tabs on this situation and will issue updates as necessary.

Tammy Tyler is an employment law compliance manager at Paychex, Inc., a leading provider of integrated solutions for payroll, HR, retirement, and insurance services.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.

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